Case Study

A Sound Investment

Suzanne Caldwell
Cumbria Chamber of Commerce

The link between skills development and business success.

There’s a good reason why we’re using the slogan ‘Profiting through Skills’ for the campaign to promote workforce development and apprenticeships in Cumbria: business is all about profit. If you’re in business and not making a profit long term then you’re not really in business.

It’s well proven – through numerous surveys and research – that investment in skills really does enhance your business profits. The relationship between training in SME businesses and their profitability shows a seven fold increase in average gross profit per employee between the top 25% of investors in training and the bottom 25%.

Looking at it more broadly, UK apprenticeships deliver £16-21 for every £1 invested, and according to a 2015 report by City & Guilds a 10% increase in vocational skills over the next 10 years would increase the UK Gross Domestic Product by £163 billion.

A 10% increase in vocational skills over the next 10 years would increase the UK Gross Domestic Product by £163 billion.

When you stop to think about the ways training enhances profits, many of the reasons are fairly obvious. If your staff are well trained in how to do their jobs then it stands to reason that there should be reduced error rates, fewer accidents, reduced breakages/repairs and they will be able to work more efficiently and effectively. These are all things that reduce costs and increase productivity.

It also leads to a more adaptable workforce, more open to and able to embrace change.

Business is all about profit. If you’re in business and not making a profit long term then you’re not really in business.

This though is only part of the story. Studies also show that training reduces staff turnover and absenteeism, with staff feeling happier and more confident in their roles and valued by the organisation. With higher retention rates you reduce the costs of employing new staff – both the direct costs and any loss of productivity while posts are empty and while new staff get up to speed.

80% of businesses who invest in apprenticeships, for example, report an increase in staff retention and 92% of employers say that apprentices leads to a more motivated and satisfied workforce. Another study shows 40% of employees who receive poor training leaving within a year – although of course this rather depends on the job market and their other options.

For the same reasons staff feel more engaged and motivated. And it’s not only the staff who received the training. According to research, others also become more productive when their peers are trained. Conversely low retention reduces morale among those remaining in the business and problems are exacerbated.

Some of this is to do with a more generally motivated atmosphere within the business, as George Mayo showed in the famous Hawthorne experiments in the 1920s, showing an interest in your workers increases productivity. It was true then and it remains true today. As part of a virtuous circle all of this further reduces costs, increases productivity and enhances profits.

The BEIS Small Business Survey 2016 highlights recruitment and skills as key obstacles to success.

Recruiting and retaining the right staff is something that’s important to any employer. But it’s particularly important here in Cumbria, and increasingly so.

We have a shrinking working age population and this is set to worsen over the next 20 years. Cumbria LEP Skills Investment Plan indicates that to replace natural wastage alone we’ll need to find an extra 66,500 workers between 2016-2021 to compensate for factors such as retirement and outmigration. Including the expected jobs growth raises the requirement to 80,300. That’s a lot of people!

Added to this, more than 40% of these will need to be at Level 4 or above but at present, only 28% of our working age population is qualified to this level. It was no surprise that the 2016 UK Employer Skills Survey reported 16% of employers in Cumbria as having skills gaps and 69% with upskilling needs.

It’s clear we need to retain more workers in the county (especially younger people), encourage more to move here and make the most of the workforce we have through enhancing productivity. The pressure will be even harder than it is now on individual businesses to keep the workers they have rather than see them move to other opportunities in the county – and to replace them if they do.

Not only does investment in training support retention and increase productivity (by reducing your labour requirement), it also makes your business more attractive to potential staff. Within the County we can see examples of this across the range of sectors, from engineering to hospitality.

The relationship between training in SME businesses and their profitability shows a seven fold increase in average gross profit per employee between the top 25% of investors in training and the bottom 25%.

According to various studies it’s not just current and potential employees who view your business as more attractive. Apprenticeships for example, can improve a company’s reputation and increase consumer demand for the goods and services it offers. Partly this is to do with being seen as a good employer and a business that cares about how it operates, part of it is about improved customer service and hence, customer satisfaction.

If training is important in staying where you are and becoming more competitive and profitable, it’s perhaps even more vital if you’re seeking to grow. So, when working on your plans consider growth opportunities as well as current needs, including succession planning. It also makes sense to consider training as part of your overall plan for the business, not as a free-standing element, so that you’re taking full account of market opportunities, capital investment, competitor activities and so on. The BEIS Small Business Survey 2016 highlights recruitment and skills as key obstacles to success. It indicated that businesses providing training to employees, leadership & management or team working to managers, are more likely to grow – and significantly more likely to grow if they undertake leadership & management training.

With support readily available through this project you’re in a win-win situation. Not only will training deliver the benefits to your business and enhance profitability, you can also access much of the funding for free. This means your investment in financial terms is much reduced and the return on investment that much higher.

So with the evidence clear, there’s probably never been a time when it was more important to review your training needs and opportunities to make sure that it’s your business that’s Profiting through Skills.

80% of businesses who invest in apprenticeships report an increase in staff retention and 92% of employers say that apprentices leads to a more motivated and satisfied workforce.

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